Geoscience Reference
In-Depth Information
3
Interregional and International Trade:
Different Causes, Different Trends?
Paul Krugman
Abstract
It is argued in this paper that there are significant differences between inter-
regional and international trade, mainly because of the existence of increasing
returns at a regional level, next to comparative advantages. Consequently,
location matters, although interregional trade seems to be lagging GDP growth,
most likely as a result of a structurally declining regional specialisation.
Our charge, in writing for this memorial volume, is to produce new analytical work.
And in what follows I'm going to try to do a bit of that. As an introduction,
however, I want to tell the story of two old topics.
First, and not surprisingly, there's Walter Isard's pioneering opus
Location and
Space-Economy
(
1956
), which founded the field of regional science. As Masa
Fujita pointed out some years ago (Fujita
1999
), it was and is a remarkable work,
anticipating much of what would be laboriously rediscovered decades later by
mainstream economists. In particular, Isard—then still in his 1920s—pointed out,
correctly, that a theory of the spatial economy would necessarily have to be at least
in part a theory of monopolistic competition. Sure enough, when some of us
realized that the tools of the New Trade Theory could be harnessed to the discussion
of economic geography, monopolistic competition was crucial to the project.
In my own case, however, I'm sorry to say, Isard's classic was not the proximate
source of inspiration—I came to his work late. Instead, I drew inspiration from an
even older work, Bertil Ohlin's (
1933
)
Interregional and International Trade
.As
you might guess from the title, Ohlin argued throughout for an integrated view, one
that saw trade between, say, different regions of the United States as essentially
similar to trade between different countries within Europe. He concluded by
declaring that “The theory of international trade is nothing but
internationale
Standortslehre
” (the international study of location.) I took that as my motto,
